A problem that often arises when people try to refinance their home is the discovery of a pre-existing lien from a previous loan that was not removed by the lending company. The cost of removing a lien and returning the title to the homeowner, a process known as reconveyance, is usually included in fees associated with a home equity loan. When the loan is paid off, the lender is generally responsible for removing the lien, so that public records show the property to be unencumbered.
There are various reasons for why the lien isn't always removed - oversight on the part of the lender, especially during heavy periods of refinancing, is often the problem. Occasionally, the problem can arise when a lender is sold to another company or when that lender goes out of business. No matter what the cause, a lien that hasn't been removed can come back to haunt a homeowner.
If a homeowner is in the process of refinancing a home and discovers an old lien that hasn't been removed, the entire refinancing process can be held up for weeks. This can be critical if the owner is trying to lock in an interest rate prior to closing. The problem can also arise when a homeowner is trying to take out another home equity loan, perhaps to facilitate debt consolidation or home improvements.
Here are a few things you can do to avoid this problem:
Get a copy of your credit report. If there are any errors, particularly errors showing an open line of credit or a home equity loan that has been paid off, contact your lender.
Keep your paperwork from all real estate loans, even if you have already paid them off. Then you will have them at hand should you need to demonstrate that you have fulfilled your obligations.
If the lien shows up on public records or a credit report, but the original lender says that you have paid it, have them send you a copy of their documentation regarding your reconveyance.
As with most issues that come up when financing or refinancing a home, this one can be resolved by remaining diligent and keeping proper paperwork. As always, it's a good idea to check your credit report regularly, particularly if you plan on taking out a loan in the near future.
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